Miraca Life Sciences yesterday announced it has acquired PLUS Diagnostics. As a result, Miraca is now the “largest independent anatomic pathology laboratory company in the United States” and will handle specimens from more than 5,500 patients per day.

Until 2006, PLUS Diagnostics was a regional laboratory based in Irvine California, when it was purchased by Water Street Healthcare Partners, a private equity firm with $2 billion in capital that specializes in healthcare industry ventures. Since then, PLUS has tripled in size and increased its subspecialty capabilities.

If the Water Street name sounds familiar, it is likely because it was in the news for having sold another of its laboratory companies, ConVerge, to Quest Diagnostics earlier this month.

The financial terms of the Miraca-PLUS deal, which closed on October 21, 2013, will not be disclosed, but Mr. Dave Pauluzzi, CEO of PLUS Diagnostics, told me Water Street and PLUS are “very pleased with the outcome.”

Mr. Pauluzzi said Water Street has maintained active dialogues with leading lab services companies ever since it purchased PLUS in 2006 and:

the sale was completed to achieve our and Water Street’s goal of building on PLUS’ success and Miraca’s vision of becoming the largest independent anatomic pathology company in the United States.

In November 2010, Marsha Fontanive, former Director of Sales for Caris Diagnostics‘ oncology division, filed a qui tam (whistleblower) suit against Caris, alleging violations of the False Claims Act (FCA) and Anti-Kickback Statute (AKS). She was later joined by another relator, Lindsey Vitez, a former coding specialist at Caris, who alleges she was retaliated against. On June 17, 2013, Caris filed a motion to dismiss the suit in its entirety.

Miraca Life Sciences was later added as a defendant in the suit after it purchased Caris Diagnostics in October 2011.

Relator Allegations

Many of the allegations center around Caris’ Target Now and hematopathology testing. Target Now uses a combination of testing modalities (immunohistochemistry, FISH, microarray analysis, and DNA sequencing/mutation analysis) to assess malignancies.

Waiving of technical fees

The relators allege Caris improperly billed Medicare for the technical component (TC) of the Target Now test for Medicare inpatients, despite the fact reimbursement for the technical fee is included within hospitals’ bundled payment for the patient’s hospital stay. In addition, the test did not meet criteria for an exception to bill Medicare separately for the TC.

Apparently at some point Caris decided to stop billing Medicare for the TC, but did not bill the hospitals for the TC either so as to not interfere with the referral stream. The relators claim this amounts to an illegal kickback.

A judge has just ruled on several motions advanced by both plaintiffs and defendants in a lawsuit filed by Miraca Life Sciences against two of its former dermatopathologist employees alleging, among other things, breach of contract.

In June 2012, Metroplex Pathology Associates and Miraca Life Sciences (Miraca) sued Dr. Lisa Cohen and Dr. Thomas Horn as well as their current employer, the Massachusetts General Physicians Organization Dermatopathology Associates (MDA). Miraca, which is the sole shareholder of Metroplex, is suing for “…breach of contract, breach of the implied covenant of good faith and fair dealing, tortious interference with contractual relations, unfair practices in violation of M.G.L. c. 93A, and civil conspiracy”.

Dr. Cohen started Cohen Dermatopathology (Cohen) in 1997 and was later joined by dermatopathologists Drs. Lisa Lerner and Thomas Horn; Drs. Cohen and Lerner were the only shareholders of Cohen Dermatopathology. In May 2007, Cohen was sold to Caris Diagnostics for $80 million cash; Drs. Cohen and Lerner each received approximately $40 million, according to the original complaint. In November 2011, Miraca purchased Caris Diagnostics.